Filing Requirements for Connecticut Non-Profit Organizations

Filing Requirements for Connecticut Non-Profit Organizations

From a previous article titled “Advantages of Audits for Nonprofits,” we shed light on the valuable role of financial audits and related processes like reviews or compilations for nonprofit entities. These mechanisms not only ensure regulatory compliance but also unlock opportunities for securing grants and external funding, thereby instilling a sense of confidence within the organization’s Board of Directors.

Presently, nonprofit organizations face heightened scrutiny when it comes to accurately documenting donor-restricted sums, making appropriate allocations of functional expenditures, and providing quantitative insights into liquidity and revenue generation methods. Navigating these demands calls for the expertise of a certified public accountant (CPA), who can offer expert advice on achieving the mandatory disclosures.

In the state of Connecticut, the necessity to furnish an audit or review report hinges on the gross revenue earned by the organization in a given fiscal year. This encompasses income sources such as donations, fundraising endeavors, program charges, investment gains, and miscellaneous inflows.

Connecticut Non Profit Filing Requirements: Audit and Review Financial Statements Required by CT Department of Consumer Protection

Connecticut Senate Bill # 1058 recently passed changing the non-profit organization reporting audited financial statement requirements.  Prior to the Bill’s passage, non-profit organizations were required to obtain audited financial statements if their gross revenues exceeded $500,000 and submit the audit report to CT within eleven months of the end of the Organization’s fiscal year.  Under the new law, Organizations with gross revenues between $500,0001 and $1,000,000 must engage a CPA to perform either a review or audit engagement.  (Review engagements are a mid-level service requiring less procedures at a lower fee than an audit).  At the same time, the mandatory audited financial statement threshold has been increased for organizations with gross revenues exceeding $1,000,000.  Therefore, a non-profit organization will need to engage a CPA to perform and prepare an annual audit if the Organization has gross revenues exceeding $1,000,000.  In both cases, the calculation of gross revenues for Connecticut’s filing requirement purposes should exclude grants or fees from government agencies.

The state agency responsible for the administration of charitable organization annual registrations is the Department of Consumer Protection.  The commissioner of the Department has the authority to waive the audit or review report requirement if there is good cause.  However, if the organization is being audited by the Department of Consumer Protection or if the organization is attempting to reinstate its status after lapsing, it will need to obtain audited financial statements.

What is the Purpose of An Audit or Review Engagement?

In an audit, the CPA as auditor issues a judgment or opinion regarding the accurate presentation of financial statements in alignment with U.S. generally accepted accounting principles (GAAP). This is accomplished by cross-referencing account balances with external sources, sending verification requests, evaluating risks and internal controls, conducting managerial inquiries, and executing analytical and concluding procedures.  In performing nonprofit organization engagements, the auditor will follow the AICPA’s generally accepted auditing standards applicable to nonprofit organizations and if necessary, the U.S. Government Accountability Office’s generally accepted government auditing standards.  Although fraud detection is not the primary purpose of an audit, an audit should provide reasonable assurance that the financial statements are free from material misstatements, providing users with a high degree of confidence in the financial information presented.  A nonprofit entity receiving an unqualified opinion obtains a “clean opinion,” signifying the highest possible rating.

In a review engagement, the CPA firm will perform procedures that are significantly less in scope than an audit in order to provide “limited assurance” that the financial statements are free from error.  A review engagement is accomplished by performing analytical procedures such as historical comparisons, ratio analysis, or statistical data to compare expected income and expense balances to actuals.  Any deviations are reviewed with the Organization’s management and additional inquiries are normally performed.  The benefit of a review engagement is it is less time-consuming than an audit and less expensive while still providing some assurance to financial statement users on the amounts presented.

Touching on the term “Single Audit” and Does Your Organization Need One ?

The Single Audit involves a financial audit of a nonprofit Organization’s records, testing of internal controls as well as the Organization’s compliance with the rules and regulations of a government grant award.  Therefore, it only becomes a consideration if the Organization receives government grants in excess of a minimum dollar threshold.

For Connecticut nonprofit organizations, the Single Audit requirement pertains to organizations that receive state governmental financial assistance equal to or exceeding $300,000 in a fiscal year.

For Federal purposes, the Single Audit requirement threshold is $750,000 or more for any non-federal entity that receives federal financial assistance either directly or through a pass-through entity.

Given that the Connecticut Single Audit requirement is lower than the $1,000,000 audit threshold discussed in the preceding section, Connecticut nonprofit organizations need to carefully examine where gross revenue is derived.  If an organization’s gross revenue falls below $1,000,000 but has $300,000 or more in state financial assistance, then the review engagement rules above would not apply and instead the Organization would need to obtain a Single Audit.

Further information on Single Audits can be found in the State’s Compliance Supplement to the State Single Audit Act at: portal.ct.gov.

Tax Return Requirements for Connecticut Non-Profit Organizations

All non-profit organizations in the state of Connecticut must also file the following annual forms and reports.

  • File Form 990 (H3)

Each year, virtually all non-profit organizations in the state of Connecticut must file Form 990 with the IRS.  Even organizations that are not exempt from federal taxation and, therefore, don’t file a 990 or 990-EZ with the IRS, still must submit a 990 for state purposes.

  • File Connecticut Annual Report (H3)
  • Renew the Charitable Solicitation Registration (H3)

Each organization must file a Charitable Organization Renewal Notice to be submitted to Connecticut’s Department of Consumer Protection. Another filing fee of $50 is due along with this form which can be completed online.

Staying in compliance with not-for-profit regulations can be challenging but our CPAs are experienced in nonprofit engagements and can readily answer your questions.  If you or your Board of Directors is looking for specific information, our team at the Innovative CPA Group is available for a free consultation.

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2023-10-25T13:58:13+00:00August 23rd, 2023|Audit, Business|

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